Copyright 2008 The McGraw-Hill Companies 26-1 Labor Wages and Earnings Real Wages and Productivity...
24
Copyright 2008 The McGraw-Hill Companies 26-1 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show 26 Wage Determinatio n
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Transcript of Copyright 2008 The McGraw-Hill Companies 26-1 Labor Wages and Earnings Real Wages and Productivity...
Copyright 2008 The McGraw-Hill Companies26-1
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
26
WageDetermination
Copyright 2008 The McGraw-Hill Companies26-2
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Chapter Objectives• Why Labor Productivity and Real
Hourly Compensation Track So Closely Over Time
• How Wage Rates and Employment Levels are Determined in Competitive Labor Markets
• How Monopsony Can Reduce Wages Below Competitive Levels
• How Unions Can Increase Wage Rates
• The Major Causes of Wage Differentials
• The Types, Benefits, and Costs of “Pay-for-Performance” Plans
Copyright 2008 The McGraw-Hill Companies26-3
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Labor Wages and Earnings• Wage Rate• Nominal Wage• Real Wage• General Level of Wages• Role of Productivity
–Plentiful Capital–Access to Abundant Natural
Resources–Advanced Technology–Labor Quality–Other Factors
Copyright 2008 The McGraw-Hill Companies26-4
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Labor Wages and EarningsGLOBAL PERSPECTIVE
Hourly Wages of Production WorkersSelected Nations
Hourly Pay in U.S. Dollars, 2004
Source: U.S. Bureau of Labor Statistics, 2006
DenmarkGermany
SwitzerlandSweden
United KingdomFrance
United StatesAustralia
JapanCanada
ItalyKorea
TaiwanMexico
0 5 10 15 20 25 30 35
33.7532.53
30.2628.42
24.7123.89
23.1723.09
21.9021.4220.48
11.525.97
2.50
Copyright 2008 The McGraw-Hill Companies26-5
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Real Wages and Productivity• Secular Growth of Real
Wages• Long Run Trend of Real
Wages in the U.S.
Rea
l Wag
e R
ate
(Do
llars
)
Quantity of Labor
D1900
S1900
D1950
D2000D2020
S1950
S2000
S2020
Copyright 2008 The McGraw-Hill Companies26-6
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Purely Competitive Labor Market
• Market Demand for Labor
• Market Supply for Labor
• Labor Market Equilibrium
• MRP = MRC RuleGraphically…
Copyright 2008 The McGraw-Hill Companies26-7
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Purely Competitive Labor Market
Wag
e R
ate
(Do
llar
s)
Wag
e R
ate
(Do
llar
s)
($10)WC
($10)WC
Labor Market Individual Firm
Quantity of Labor Quantity of Labor
QC
(1000)
0 0
D=MRP(∑ mrps)
d=mrp
qC
(5)
s=MRC
S
e
c
b
a
G 26.1
Copyright 2008 The McGraw-Hill Companies26-8
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Monopsony Model
• Monopsony• Upward-Sloping Labor
Supply to Firm• MRC Higher Than the
Wage Rate• Equilibrium Wage and
EmploymentGraphically…
O 26.1
G 26.2
Copyright 2008 The McGraw-Hill Companies26-9
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Monopsony Model
Wag
e R
ate
(Do
llars
)
Quantity of Labor
0
S
MRP
MRC
c
b
aWc
Wm
Qm Qc
Examples of Monopsony Power
Monopsonistic Labor Market
W 26.1
Copyright 2008 The McGraw-Hill Companies26-10
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Demand Enhancement
Model–Increase Product Demand–Increase Productivity–Alter the Price of Other
Inputs
Wag
e R
ate
(Do
llar
s)
Quantity of Labor
Wu
Qc Qu
Wc
D1
D2
S
IncreaseIn Demand
Copyright 2008 The McGraw-Hill Companies26-11
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Exclusive or Craft Union
Model–Restricted Immigration–Reduced Child Labor–Encouraged Compulsory
Retirement–Shorter Hour Workweek–Exclusive Unionism–Occupational Licensing
Graphically…
Copyright 2008 The McGraw-Hill Companies26-12
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Exclusive or Craft Union
ModelW
age
Rat
e (D
olla
rs)
Quantity of Labor
D
S1
Qc
Wc
S2
Wu
Qu
DecreaseIn Supply
Copyright 2008 The McGraw-Hill Companies26-13
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Inclusive or Industrial
Union Model–Inclusive Unionism
Wag
e R
ate
(Do
llars
)
Quantity of Labor
D
S
Qc
Wc
Wu
Qu Qe
a be
Copyright 2008 The McGraw-Hill Companies26-14
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Wage Increases and
Unemployment• Average 15% Higher
Wages• Reduced Employment
Levels Corrected by:–Growth–Elasticity
Copyright 2008 The McGraw-Hill Companies26-15
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Bilateral Monopoly• Indeterminate Outcome• Desirability of Bilateral
MonopolyW
age
Rat
e (D
olla
rs)
Quantity of Labor
D=MRP
S
Qc
Wc
Wu
Qu=Qm
MRC
Wm
a
Copyright 2008 The McGraw-Hill Companies26-16
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Minimum Wage• Case Against the
Minimum Wage• Case For the Minimum
Wage• State and Locally Set
Rates• Evidence and
Conclusions
Copyright 2008 The McGraw-Hill Companies26-17
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Wage DifferentialsAverage Annual Wages in Selected Occupations, 2005
SurgeonsAircraft PilotsPetroleum EngineersFinancial ManagersLaw ProfessorsChemical EngineersDental HygienistsRegistered NursesPolice OfficersElectriciansTravel AgentsBarbersRetail SalespersonsRecreation WorkersTeacher AidesFast Food Cooks
$177,690135,04097,35096,62095,57079,23060,62056,88047,27045,63037,75024,70023,17022,42021,10015,500
Source: Bureau of Labor Statistics, 2006
Occupation Annual Average Wages
Copyright 2008 The McGraw-Hill Companies26-18
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Wage Differentials• Marginal Revenue
Productivity• Noncompeting Groups
–Ability–Education and Training
• Human Capital
• Compensating Differences
O 26.2
Copyright 2008 The McGraw-Hill Companies26-19
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
18-24 25-34 35-44 45-54 55-64 65+
Wage DifferentialsEducation Levels and Individual Annual Earnings
EducationalAttainment
An
nu
al E
arn
ing
s (T
ho
usa
nd
s o
f D
olla
rs)
Age
Professional Degree
Bachelor’s Degree
Associate’s Degree
High School Diploma
Copyright 2008 The McGraw-Hill Companies26-20
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Wage Differentials• Marginal Revenue• Market Imperfections
–Lack of Job Information
–Geographic Immobility–Unions and Government Restraints
–Discrimination
Copyright 2008 The McGraw-Hill Companies26-21
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Pay for Performance• The Principal-Agent
Problem Revisited• Incentive Pay Plan• Piece Rates• Commissions or Royalties• Bonuses, Stock Options,
and Profit Sharing• Efficiency Wages• Negative Side-Effects of
Pay for Performance
O 26.3
O 26.4
Copyright 2008 The McGraw-Hill Companies26-22
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Are Chief Executive Officers (CEOs) Overpaid?
• Current U.S. CEO Salaries are High Relative to Domestic or Foreign Firms
• Several Possible Reasons• Marginal Productivity Impact by Good
Decisions• Top Salaries Like “Prize” Goals for all
to Have as a Goal Impacting Many Jobs
• High Salary Bias by Board Members Due to their Own Previous Performances
• Some Argue High Salaries are Unjustified and are Unfair to Stockholders
Last
Word
Copyright 2008 The McGraw-Hill Companies26-23
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Key Terms• wage rate
• nominal wage
• real wage
• purely competitive labor market
• monopsony
• exclusive unionism
• occupational licensing
• inclusive unionism
• bilateral monopoly
• minimum wage
• wage differentials
• marginal revenue productivity
• noncompeting groups
• human capital
• compensating differences
• incentive pay plan
Copyright 2008 The McGraw-Hill Companies26-24
Labor Wages and EarningsReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
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Rent, Interest,and Profit
